PRATHAMIKA KRUSHI PATTINA SAHAKARI SANG NIYAMIT KAKHANDAKI,KAKHANDAKI vs. INCOME TAX OFFICER WARD-1 & TPS, BIJAPUR

ITA 2388/BANG/2026Status: DisposedITAT Bangalore09 October 2026AY 2018-197 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the interest income earned from mandatory deposits with the District Central Co-operative Bank is indeed attributable to the business activities of the assessee and eligible for deduction under Section 80P(2)(a)(i). The Tribunal noted that the assessee is a primary agricultural co-operative society facilitating NABARD funds to farmers, making such deposits a statutory and mandatory requirement. Failure to do so would impede the society's ability to distribute funds to farmers and effectively shut down its business. Therefore, the incidental interest income cannot be treated as income from other sources. The Tribunal relied on the jurisdictional High Court's decision in *Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO*, which held that interest income from deposits is attributable to the profits and gains of the business of providing credit facilities. The Tribunal also referred to a coordinate bench's reliance on the Supreme Court's decision in *CIT vs. Karnataka State Co-operative Apex Bank*, which held that income derived from funds placed mandatorily for carrying on banking business is income from the assessee's business. Similarly, the dividend income received from investments in shares of a co-operative institution was also held to be eligible for deduction under Section 80P(2)(a)(i) as it is almost a statutory requirement and attributable to the business activities. Consequently, the Tribunal deleted both additions made by the AO and confirmed by the CIT(A).

What were the facts?

The assessee, M/s. Prathamika Krushi Pattina Sahakari Sang Niyamit, a co-operative society, filed an appeal challenging the order of the NFAC, Delhi for Assessment Year 2018-19. The Assessing Officer (AO) selected the case for scrutiny, examining investments, advances, loans, and Chapter VI-A deductions. The AO proposed to add interest income of Rs. 14,15,486/- and dividend income from DCC Bank shares to the total income. The assessee's appeal to the CIT(A) was dismissed, with the CIT(A) holding that the assessee was not entitled to deduction under Section 80P(2)(d). The assessee then appealed to the ITAT.

What were the issues?

1. Whether the interest income earned from mandatory deposits with the District Central Co-operative Bank is attributable to the business activities of the assessee eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. Assessee's Contention: The assessee argued that as a primary agricultural co-operative society facilitating NABARD funds to farmers, it was mandatory to deposit funds with the DCC Bank. The interest earned is thus automatic and attributable to its core business activities, qualifying for deduction under Section 80P(2)(a)(i). They relied on the jurisdictional High Court's decision in *Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO* and a coordinate bench's order in *Sree Cauvery Soudharda Credit Sahakari Sangha Niyamitha vs. ITO*. Revenue's Contention: The Revenue contended that interest income from bank deposits is not eligible for deduction under Section 80P(2)(a)(i) and is not an operative income eligible for deduction. 2. Whether the dividend income earned from shares of a co-operative institution is attributable to the business activities of the assessee and eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. Assessee's Contention: The assessee argued that purchasing shares in co-operative organizations is a mandatory requirement, making the dividend income attributable to its business activities and eligible for deduction under Section 80P(2)(a)(i). Revenue's Contention: Not specifically recorded, but impliedly against the deduction.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 80P(2)(d)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI BALAKRISHNAN S. & SHRI SOUNDARARAJAN K.

PER SHRI SOUNDARARAJAN K., JUDICIAL MEMBER:

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 06/05/2026 in respect of the A.Y. 2018-19. 2. The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act. Duri

The order continues below.

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